Fitch's New Rating Criteria Could Benefit Municipalities

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Fitch instituted a new rating criteria in early April, which could help boost the credit ratings for municipalities and other tax-supported entities.
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Fitch instituted a new rating criteria in early April, which could help boost the credit ratings for municipalities and other tax-supported entities. The recent rating upgrade for the City of Milwaukee (full disclosure I am a proud Milwaukeean) is one example of such a rating change, which was aided by the new criteria as well as recent legislation allowing for additional taxes to be levied. While Fitch's ratings will not lead to upgrades for all issuers, the new criteria may provide an opportunity or a different rating option for governmental issuers.

A couple of notable features for this new criteria include: (1) issuers receive a numeric value along with the rating to better assess how close they are to a different rating, (2) the long-term liability metric no longer includes overlapping-debt, and (3) each factor now has a specific assigned weighting.

Milwaukee benefited from Fitch's new rating criteria, rolled out last month, which incorporate most of the credit factors that Fitch has considered historically but include additional analytical factors and now assign specific weightings to each factor.

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